Arbitration is seen as an effective dispute mechanism and is sought to achieve dispute resolution in a timely and cost-effective manner. Mediation enables parties to reconsider each other's mutual interests and rights, fostering amicable and innovative solutions.
The ministry of Finance in the month of July, 2024 released the guidelines relating to use of arbitration and mediation in which it advocated the use of mediation mechanism for disputes valuing over ten crore rupees, the guidelines endorse restricting the arbitration clauses to values of less than ten crore. In this article, firstly we shall be discussing why arbitration as a mechanism is losing its popularity. Secondly, we shall be comparing mediation and arbitration by analyzing the Mediation Act of 2023. Thirdly and lastly, we shall be analyzing the effectiveness of the guidelines.
I. Losing popularity of Arbitration
A. The DMRC – DAMPEL
In 2017, an arbitral tribunal awarded DAMEPL $563.66 million, including $207.57 million in interest. DMRC challenged the award under §34 and §37 of the ACA, leading to delays. The Delhi High Court and Supreme Court upheld the award, but a Curative Petition by DMRC in 2022 kept the case unresolved. The prolonged process has increased the interest to $486.47 million, impacting infrastructure projects and deterring investment, showcasing inefficiencies in India's arbitration system.
The Supreme Court has now contradicted its earlier chance on minimal judicial interference in arbitration proceedings. This has negatively impacted India's stance on Arbitration and has shaken the finality of arbitration cases as other government entities would also be willing to challenge the arbitral award through curative petition thus resulting in increased judicial interference in arbitral proceedings violating the spirit of the Arbitration and Conciliation Act, 1996.
B. Failure on the part of Judiciary to timely execute and enforce arbitration proceedings
In the case of Chopra Fabricators v Bharat Petroleum, the Supreme Court pointed out the sorry state of affairs. In the present case, the arbitral award was passed in the year 1992 and the execution petition was filed in the year 2003 however, the matter was still pending to be enforced. The Court expressed that:
"It is very unfortunate that even after a period of 30 years, the party in whose favour the Award is passed is not in a position to enjoy the fruit of the litigation/Award. Even the execution petition is also pending for more than 19 years. This is a very sorry state of affairs."
Thereafter, the Supreme Court ordered a report on pending arbitration-related petitions in Uttar Pradesh. The Allahabad High Court found 30,154 execution petitions in district courts (oldest from 1981) and 13,367 in commercial courts (oldest from 2002). Section 34 applications pending in regular courts total 10,436 (oldest from 1987) and 1,209 in commercial courts (oldest from 1988).
POINT BY POINT COMPARISION OF ARBITRATION AND MEDIATION: THE BETTER OPTION
Arbitration proceedings is governed by the Arbitration and Conciliation Act, 1996 which is based on the New York convention on recognition of arbitral proceedings. Mediation proceedings are governed by the Mediation Act of 2023.
In this part, we shall be comparing both the acts on three levels; (i) time limit (ii) Scope of challenges to proceedings and (iii) Mechanism of enforcement: finality of award.
TIME LIMIT
Section 29A of the Arbitration and Conciliation act states that the Arbitration proceedings should be completed within the time period of 12 months which in exception cases can be extended by 6 months, which makes the maximum time to conduct arbitration proceedings 18 months (one and a half year).
Section 18 of the Mediation Act, 2023 states that the mediation proceedings should be conducted in a time bound manner not exceeding 120 days which in some cases can be extended by 60 days, making the maximum time to conduct mediation proceedings 180 days or 6 months (half a year).
The difference is clearly pointed on a bare reading of both the provisions i.e., eighteen months and 180 days which points out to the conclusion that maximum time allowed for conducting mediation proceedings is one third of that allowed for arbitration making mediation a more time-efficient approach.
I. SCOPE OF CHALLENGES TO PROCEEDINGS
Section 34 of the Arbitration Act provides for ground to challenge arbitral proceedings. Although, the approach of the courts as highlighted in ONGC v Saw pipes was tilted towards added judicial intervention in arbitral proceedings, the supreme court in Ssyangong v NHAI relying on the 2014 amendment act narrowed down the scope of intervention u/s 34 only to very exceptional circumstances and reversed the judgement in the former case.
The Supreme Court gave a landmark decision in this case paving a way for minimal judicial interference in Arbitral proceedings. Despite this, many high courts act in a manner antithetical to the decision in the latter case.
Section 28(2) of the Meditation Act, 2023 states four grounds for challenging a mediated settlement these are; (a) fraud (b) corruption (c) impersonation and (d) subject matter not fit for mediation under Section 6.
The section has imposed very specific and limited restrictions which do not go against the spirit of mediation, a bare perusal of Section 28 points out to the conclusion that a settled agreement or a mediated agreement may only be challenged in very exception circumstances and the grounds mentioned are also in consonance with securing the interests of both the parties and ensuring justice since fraud, corruption and impersonation directly infringes the rights of a party and if a subject matter is not fit for mediation yet it is mediated upon, it is antithetical to justice, for example; a heinous offence or a criminal matter cannot be mediated as the crime committed or alleged is too big for it to be settled through monetary compensation.
Therefore, the grounds mentioned are in consonance with the objective of the mediation act as well as it seeks to secure the ends of justice and ensure that the rights of the parties are not violated.
Under the 1996 Act, there is a lot of room for challenging an arbitral award as the grounds mentioned are not limited and restricted, although the Supreme Court is tilted towards minimal judicial interference, somehow the arbitral award gets challenged and ends up in the line of cases, leading to delay of months years or even decades.
An analysis was done pertaining to challenges to arbitration proceedings. The analysis reveals three key insights: a. Significant flow of cases from Section 34 to Section 37 challenges (70% in Delhi, 90% in Bombay). b. Process duration: Section 34 adds 3.6 years, Section 37 adds 5.8 years. c. Court handling: Delhi High Court upholds 80% of awards; Bombay, 53%, and takes longer.
Similarly in the case of Chopra Fabricator as discussed earlier, the fact-finding committee order said that the number of applications under Section 34 pending before regular court are 10,436 and the oldest one dates back to 1987 whereas those pending before the commercial court are 1209 and the oldest one dates back to 1988.
Therefore, it can be concluded that the arbitral proceedings are posed with a problem of finality and are exposed to scrutiny of the court though Section 34 & 37, which leads to delay in dispute resolution hampers the reliability of arbitration as a mechanism for speedy dispute resolution.
II. ENFORCEMENT
Section 36 of the Arbitration and Conciliation Act states that once the time to challenge an award under section 34 lapses, the arbitral award is enforced as a court decree per the Civil Procedure Code.
As per Section 27 of the Act, a Mediated Settlement Agreement will be "final, binding and enforceable on the parties in the same manner as if it were a judgment or decree passed by a court".
A mediation settlement agreements does not need the approval of the judiciary for its enforcement unlike an arbitral award. The act of 2023 grants the finality to mediation agreement which the 1996 act failed to do. This ensures that the parties to mediation are able to realise the fruits of the settlement as soon as possible whereas the arbitral award is required to be enforced once the court has given a green signal and the quandary of late disposal of execution petitions is a very pertinent problem which has been highlighted in the earlier part of the article in the Chopra fabricators case.
CONCLUSION
Mediation as a form of alternate dispute resolution is granted with more autonomy and finality in comparison to Arbitration. Arbitration although is a novel approach for speedy resolution, the provisions of the 1996 Act make it a slow and delayed process by snatching the independence and finality of Arbitral proceedings through various provisions.
Albeit the merits of mediation, there are some demerits associated with it:
Firstly, India has not ratified the Singapore convention on mediation which leads to problem of enforcing a mediation settlement agreement which happened outside India. This leads to non-preference to mediation in cross-border commercial disputes.
Secondly, the Arbitration Act provides for specificity pertaining to interim order, fees and tries to talk about each and every aspect of an arbitral proceeding, and is also based on the New York convention which leads to foreign investors as a more reliable source of dispute resolution.
Although the Mediation Act, 2023 is a positive step towards greater dispute resolution, the landscape of Arbitration in India needs to be improved as soon as possible rather than capping the value of disputes as Arbitration is very relevant and important when it comes to resolution of a commercial dispute.
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